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The ATO has issued a Decision Impact Statement in relation to the Full Federal Court decision in Sent v FCT [2012] FCAFC 187, following the High Court's refusal to grant special leave ([2013] HCATrans 108).

The case concerned whether a payment made to the taxpayer's nominee by his employer ("PC") in substitution for past and future bonus entitlements was derived by the taxpayer as ordinary income when paid to the nominee.

The Decision Impact Statement states:

"The Full Federal Court (Emmett, Edmonds and Rares JJ) agreed with Murphy J that, by 30 November 2001, the taxpayer's accrued and contingent bonus entitlements had been replaced by an absolute entitlement to be issued with 5 million ordinary shares in PC. The character of that entitlement, if provided, would be income as a reward for services. The payment to the trustee in substitution for that entitlement also had the character of ordinary income, and was derived as such by the taxpayer when paid to the trustee as his nominee. The Court rejected the taxpayer's alternative argument that the payment was capital in nature as in lieu of the right to be issued with a capital asset, being the shares in PC."

The ATO's view of the decision is stated as follows:

"The ATO notes that the decisions of the Federal Court and the Full Federal Court confirm the Commissioner's view on the nature of what is ordinary income as a reward for services, and on when amounts of ordinary income are taken to be derived under s 6-5(4) of ITAA 1997."


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